Business Model Examples

Audible is one of the most successful distributors of audiobooks, using its online E-Commerce store. Part of Amazon, the Audible business model has been successful in establishing market dominance in audiobooks in North America and Western Europe.

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The Audible Business Model Canvas Video

Introduction

Hey guys, this is Denis Oakley and today I’m going to be talking about the Audible business model and I’m going to be using the business model canvas to describe it. Let me just see if I can get this a little bit more. Okay, there we go.

So this is the Audible business model canvas. Audible is a company, it’s owned by Amazon as we can see right at the top and it sells audiobooks or rather it gives people access to audiobooks.

So we’ll go through the business model canvas, start with customer segments, move on to value propositions, then cover customer relationships, marketing channels, how it makes its money, what resources it needs, the key activities that it undertakes, who its key partners are and where it spends money. And then about 10, maybe 15 minutes, we’ll get a very clear idea of how the Audible business model works and why it’s so effective at doing what it does.

Customer Segments in the Audible Business Model

So let’s start with customer segments. For customer segments, the key segment is millennials.

When you look at the Audible demographics, it’s very much very regularly split across all age groups. But I think that the thing that stood out to me when I looked at those was something like 48% of all Audible users are under 35.

An audiobook is easy to consume on the way to work, you haven’t got to be sitting reading a book, you can be doing it as you’re multitasking on the Tube in London, whether you’re driving a car, on a bicycle, walking to the shops or even just puttering around a house tidying up.

So that’s what makes it incredibly easy to consume and it’s one of the reasons why audiobooks are one of the fastest-growing digital products. In 2018 I think it was two and a half billion, which was up 16% from the year before.

So it’s a very fast-growing, very dynamic market, basically driven by the content that people want to consume.

Supply Side in the Audible Marketplace

On the other side of the marketplace, you’ve got a lot of authors and publishers. They’re seeing that how whilst traditional books are becoming more popular, given the growing population, people are consuming more of them, they’re also seeing this huge new movement of people wanting to listen to books.

And we also see that in the podcasting world as well. So you’ve got these authors and publishers wanting to take an existing book, turn it into an audiobook. And as production costs for audio have come down, that’s made it possible to really expand the market and put a lot more audiobooks into the marketplace.

Audible Value Proposition

So the value proposition, it’s very much Audible provides one place to go for easy access to audiobooks. For the authors the value proposition is cash. That’s why that they’re using Audible because it gives them a really nice distribution channel.

Network Effects at Audible

One thing that I think is worth saying here is because Audible is the largest marketplace, it’s very easy to get on there and there are so many books, so more people come. So it does really do experience that the network effects of the biggest market of its type in the world for that. So people do come on a regular basis to it.

Audibles Revenue Streams

Okay. So how does it make its money? Looking down here at the bottom, the revenue streams. Audible makes its money mainly from a monthly subscription. You’re paying $8 per a book a month or $16 for two books a month. Or if you want to just purchase, a book one-off, I think often 16 to 20 US dollars.

The pricing is there deliberately to get you to subscribe so that you then keep on. And then that gives a really nice continuous cash flow. So this does mean that Audible has to make agreements with book publishers, how to split the revenue, what share that they get for each book that’s sold out of a subscription. And that’s very closely held by Amazon, I believe. So that’s the way that the monetization works.

Marketing & Distribution at Audible

The channels, how do people come to Audible? Like most things, and I cannot stress this enough, there is so much word of mouth. I’ve told my mom, I’ve told my wife, I’ve told lots of friends about Audible, this is how I consume my content. They think,

“Oh, that’s interesting. I’d like to try that.”

And then they sign up. So that’s really important. It doesn’t really appear in the figures a lot.

The other really big one is Amazon because Audible is part of Amazon. When you’re looking for a book on a subject and they say,

“Would you like to buy the Audible book ?”

And that makes it very easy to have the written book and the audiobook. It’s continually leveraging up the size that the number of users that Amazon uses, that Amazon has, to increase the sales at Audible, and to a lesser extent, in reverse.

You can almost see Audible as an upsell on Amazon book sales. However, Amazon also owns Souq and the same doesn’t apply despite the Arabic world is a large consumer of books

Authorial Promotion

Another major marketing channel is authorial promotion. Basically, what are they? The facts of book publishing are that if the author doesn’t get off his arse and push the book, the sales aren’t that good. That’s because by and large, publishing houses do not have the resources to push lots of books.

If something is becoming a bestseller, they will then put their resources behind it. But until that happens, they’re not going to lift a finger. So it’s very much the authors building large groups of followers.

For example, James Clear, who I was reading up on The Power Of Habit [actually James Clear wrote Atomic Habits. Charles Duhigg wrote the Power of Habit].

Paul Jarvis on the Company of One, those have got audiences of hundreds of thousands of followers, which they then promote, send a book out, and then they promote the audiobook, which then brings lots of people onto the Amazon website.

Some of those will then do it as an affiliate. They get paid once for selling the book by Amazon and then once by Amazon as an affiliate for bringing a new customer onto the platform. That’s a nice bonus for the author!

PR as a Marketing Channel at Audible

And then, of course, there is also the PR. Every time a publisher publishes a book or somebody does a review and they’ll say,

“And it’s available on as a book on Amazon and audio on Audible.

So there is that continual PR as far as people promoting the books, there are also promoting the platform where it can be found on. So that it’s very much the front end of the Audible business model.

Audible Business Model – Key Resources

At the backend, what are we looking at? So some of the key resources they, the marketplace, the size of the marketplace, just the number of books on it, it just makes it very, very powerful.

It gives it a real network effect because if there’s a book that you can find on it, the more books there are, the more people come in, the more people come in, the more books that are brought in. So it’s that traditional self-sustaining, very large marketplace.

And so Amazon really doesn’t care about the content that’s on there so much as there is lots and the content is good quality. And it’s interesting that the largest publishers of books are the largest publishers of audio-books, such as Penguin, Hachette, Random House, et cetera, et cetera.

[Note: and it is apparently very lucrative for book publishers because authors can no longer retain the audio rights for their books in contract negotiations]

The other key resource is the other links to Amazon, both in its engineering department to basically… and because remember Amazon is a very, very cost-driven company. It’s driving down the engineering cost, the platform maintenance costs. It’s continually working out how to deliver it as quickly and as cheaply as possible.

It is also leveraging of the size of the Amazon brand and the number of users. Apparently a third of American consumers listen to an audiobook each year. Probably nowadays the vast majority of them are listening on Audible rather than listening to CDs, as they were doing 15 or 20 years ago.

Key Activities at Audible

So the key activities for the platform, again, it’s the platform optimization, making sure that everything works smoothly, making sure that customers are incredibly satisfied. And one of the things that Amazon does is if you don’t like an audiobook, you can return it.

I listened to a book for about five minutes, and thought,

this is absolutely terrible,

forgot to return it for about four years and then went back to them and said,

“Hey Audible, can I have a different book?”

And they said, “Sure.” Actually that didn’t just say, “Sure,” it was just an automated process where I was able to do that without any involvement. It was just so super easy and automatically the book disappeared from my Audible account.

Absolutely awesome. How they manage the accounting to do that? I’m not quite sure, but that’s for cleverer guys than me. I don’t need to know how it works, I just know that it does work and it just takes more friction out to the platform for the average user. It’s just making it easy.

It’s part of what makes it a wonderful user experience!

User Acquisition in the Audible Business Model

So then there’s also the user acquisition, the key user acquisition is to listen to your first book for free. Bang. Yeah? So instead of paying $20, $25 for a book that you want to listen, Audible is saying,

“Okay, we’ll give it to you for free.

And then we reckon if you liked listening to one audiobook, you’re going to listen to another one. And because we give the monthly subscription and it’s so low cost because we’ve got the economies of scale, you’ll sign up for the subscription and its a no-brainer.

Bang. And then we’ve got your $8-a-month revenue stream for life.” And then so they pay effectively say $24 customer acquisition costs to acquire a subscriber. Then they are making … what’s 12 times eight? … $96 a year.

I’ve been using Audible for 15 years. So obviously the CAC to LTV ratio is really, really good. And that is why a platform like Audible is so incredibly profitable because they’re recovering the acquisition costs in three months. That’s absolutely brilliant.

Key Partners at Audible

Where are we? So we talked about user acquisition. The key partners, obviously the book publishers, they’re going to be shovelling all the books onto the system. I’m sure that they don’t particularly like Audible in many ways because it is a very dominant platform.

If you’ve got one seller in the marketplace, or one platform, that gives a lot of purchasing power to Audible and then I’m sure Audible uses that to decrease the margin that the book publishes get and increase its own margins.

Amazon is notorious for driving down costs. That’s what any marketplace can do and it gets this kind of path. And that is why Amazon and Audible had such high valuations put on them by the markets. They could see that if you own the market, you’re a monopsony provider of goods.

If I’ve got that wrong do correct me in the comments. I know I need to check up on economic terms.

Cost Structure of the Audible Business Model

And so finally they had the cost structure, the royalty to the book publishers, paying the authors and the performers who are performing the books for the work that they’ve done, and the platform or costs.

Now because Audible has got the scale, I think that the marketing costs are very much lower and, as we have said, a lot of it is done through the affiliate relationships with people putting on a website, “This is a great book. You ought to go read it.” You click the link, Amazon gets a new customer, they get one or two months or whatever the affiliate deal is from the customer, depending on volume.

The Audible Business Model Canvas

So that is the Audible business model canvas. I hope you found it useful. Please do jump into the comments, ask me any questions. Tell me what I’ve got wrong. I always do get something wrong. Yeah, shout that out. I usually try and reply in about 18 eight to 12 hour to any comments. If you’ve got any questions about business models in general or startups, send me an email, denis@denis-oakley.com.

And do press like and share it if you’ve found it useful and let me know what other business models you’d like me to cover. Thanks for listening. Have an absolutely awesome day.

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